How your SMSF can invest in your company

QUESTION: Can our management consulting business give advice on a fee for service basis to a company in which our do-it-yourself super fund owns a 20 per cent interest as part of a diversified portfolio of direct shares, managed funds and cash? The other 80 per cent is owned by the company’s sole director. Over the years, this business has grown and prospered and the investment has achieved significant returns plus healthy capital growth. In value it represents more than 5 per cent of our total fund. Given the arm’s length rule on DIY fund investments, where do we stand on this matter?

Unless your 20 per cent stake gives you control or influence over the business beyond the level of interest your fund has, which it does not appear to do, this investment should not be an in-house asset with an investment restriction of no more than 5 per cent of the total fund value, says Deloitte superannuation partner John Randall.

Similarly, the return your fund receives from the investment should also reflect the interest the fund has in the company. There should be no special treatment of either shareholder as far as dividend income and other entitlements are concerned. Everything should be commercial and above board with no special deals that give either shareholder an advantage. If this is the case, says Randall, there should be no reason why your consulting business cannot provide advice on a fee for service basis to the business. In fact it should provide advice in this manner as providing advice for free could be regarded as having an effect on the company profit, which flows through to the payment of dividends.